Supporters of the proposed Benton Harbor city income tax say the streets in downtown Benton Harbor, pictured here Thursday, are great, but the streets and sidewalks in the neighborhoods are so bad they are damaging cars and buses.

Opponents of the proposed Benton Harbor city income tax say that if it is approved in November by voters, fewer businesses will move into the city and store fronts like this one at 190 Territorial Road will stay vacant. This is the former Baker's Downtown Pub & Eatery in downtown Benton Harbor. Before that, it was the Library Pub & Eatery.

Opponents of the proposed Benton Harbor city income tax, like Jon Koch, owner of City Auto Repair on Main Street, say that if the tax is approved by voters in November, fewer businesses will move into the city and some will leave.

Benton Harbor city income tax poses pros, cons

Benton Harbor voters to make decision in November

Supporters of the proposed Benton Harbor city income tax say the streets in downtown Benton Harbor, pictured here Thursday, are great, but the streets and sidewalks in the neighborhoods are so bad they are damaging cars and buses.

Don Campbell / HP staff

Opponents of the proposed Benton Harbor city income tax say that if it is approved in November by voters, fewer businesses will move into the city and store fronts like this one at 190 Territorial Road will stay vacant. This is the former Baker's Downtown Pub & Eatery in downtown Benton Harbor. Before that, it was the Library Pub & Eatery.

Don Campbell / HP staff

Jeff Noel

Don Campbell / HP staff

Opponents of the proposed Benton Harbor city income tax, like Jon Koch, owner of City Auto Repair on Main Street, say that if the tax is approved by voters in November, fewer businesses will move into the city and some will leave.

BENTON HARBOR — For the second time in four years, Benton Harbor voters in November will consider levying a city income tax on themselves and people who work in the city.

City voters rejected the proposal in 2013 by a 667-543 vote.

Not much has changed in city income tax law, said Eric Lupher, president of Citizens Research Council, an independent research organization.

He said 22 out of the state’s 279 cities levy a city income tax, with Ionia being the last city to adopt the tax in 1994.

This time, City Commissioner MaryAlice Adams said she hopes it passes.

“The need is greater,” she said. “The holes in the streets are bigger. More trees have died. The innermost part of the city is steadily crumbling, becoming more lifeless.”

Mayor Marcus Muhammad said the streets in the business district are in good repair, but the neighborhood streets are deplorable.

“I said in 2013 that the city tax, I looked at it as a lesser evil,” he said. “The greater evil would be to allow the neighborhoods, the streets, the sidewalks, the alleys, to continue to spiral down. And, quite frankly, it’s really destroying people’s vehicles, and it’s making it very difficult to travel throughout the city of Benton Harbor.”

He said he recently got a report from Twin Cities Dial-A-Ride stating that poor street conditions are destroying its buses.

“Something must be done with the streets,” he said.

City commissioners passed a resolution in July stating that city income tax receipts would be used to repair the streets, alleys and sidewalks, and also for emergencies, as decided by the mayor and City Commission. The resolution would set up a nine-member City Income Tax Oversight Committee to make sure money from the city income tax is used appropriately.

Not everyone supports tax

Jeff Noel, corporate vice president of communications and public affairs with Whirlpool Corp. in Benton Harbor, said in an emailed statement that a city income tax would be a nightmare to administer, raise less money than people think and cause a loss of revenue as businesses and residents seek lower cost locations to live and work in.

“If the tax is levied, we will need to explain to hundreds of employees why we just moved them into the Riverview building or the Benton Harbor Tech Center so they could be taxed at a higher rate than if they had not moved,” he stated.

More than 1,300 people work at the Riverview Campus at 600 W. Main St. since the third phase was completed last fall.

Another 233 people work at the Benton Harbor Technology Center at 151 N. Riverview Drive. The company transformed the formerly shuttered building known as Plant 7 into a new refrigeration technology center, which opened in December 2014.

Whirlpool’s total investment in Benton Harbor between 2010 and 2016 for new and renovated facilities is estimated to be $155 million.

“It goes without saying that we will certainly avoid creating any future jobs in Benton Harbor and instead focus on relocating jobs elsewhere in the area,” Noel stated. “In fact we have begun looking at ways to alter our plans for a couple of properties located in the city of Benton Harbor and are working on ways we can relocate or avoid location of employees to reduce the unfairness this tax will have on them.”

Jon Koch, owner of City Auto Repair on Main Street in Benton Harbor, said he opposes the tax because it will drive away businesses.

“If this passes, it’s going to be good for the surrounding communities because anybody who is coming to possibly put a business in Benton Harbor will gravitate to St. Joe Township or Benton Township where they don’t have a city tax,” he said.

Chris Heugal, president of Cornerstone Chamber of Commerce, said most of his organization’s members believe a city income tax would hurt the city.

“We are polling our members, and at this point, 89 percent believe it would hinder their growth, it would be a pay cut for their employees, it would cause turnover and hurt retention,” he said.

City Commissioner Duane Seats said he is neutral on the tax proposal.

“I don’t know how it will help us remain competitive,” he said. “I’m not going to fight it, but you’re not going to see me carrying a sign for it, either. Somehow, someway, we’ve got to get this infrastructure, the streets, fixed. But, is this the way?”

What it would do

The proposed city income tax would require businesses and city residents to pay 1 percent on their income, with non-residents who work in the city paying a 0.5 percent tax on the portion of their income they earn in the city. It would go into effect Jan. 1.

Retirement, unemployment and welfare benefits, compensation for military service and gifts would not be subject to the tax.

Lupher said the ecomomic results have been mixed where city income taxes have been levied.

He said cities with a large number of people who work but don’t live in the city tend to do better with a city income tax.

“When there’s a university or a business within the community where people are traveling from outside but using city services, how do you maintain the services and benefit from that economic activity?” he said.

Lupher said he doesn’t think a city income tax will keep people or businesses away.

“I don’t dismiss it as a non-factor. I just don’t think it’s a deal breaker,” he said. “How many people make location decisions based on 1 percent?”

No studies have been done to calculate how much money the city income tax would generate in Benton Harbor.

Lupher said the city income tax in Albion, which is about the same size as Benton Harbor, generates about $1 million a year. He said that city has Albion College, which employs a lot of people who don’t live in the city.

City income is falling

Supporters of the income tax say the city has to do something to raise more money or the situation is going to get worse.

In June, City Manager Darwin Watson reported that general fund revenue dropped almost $200,000 from the 2015-16 budget to the 2017-18 budget – from $7.14 million to $6.95 million.

He said it was mostly due to commercial businesses having their property values reduced by the Michigan Tax Tribunal.

In addition, city commissioners had to approve taking $249,000 out of its fund balance to pay for the unexpected loss in tax revenue in the 2016-17 fiscal year, which ended June 30.

Muhammad said the erosion of Benton Harbor’s property tax base by the MTT is continuing. He said there are pending cases before the MTT from Whirlpool and Harbor Shores.

“A lot of the same people going to the Michigan Tax Tribunal to have their property taxes cut in half are the same ones against the city income tax,” he said. “The neighborhoods need a way to revive.”